Finance options key as insurance premiums squeeze UK SMEs
Faced with rocketing insurance premiums, UK SMEs are increasingly looking for ways to mitigate their financial constraints. Indeed, 14% say cash flow has a significant impact on day-to-day operations according to research from Close Brothers Premium Finance.
And yet, many businesses, particularly SMEs, are missing out on the opportunity to conserve cashflow by paying for insurance on finance, as a third of SMEs pay for insurance outright. Of those who paid outright, just 1 in 10 considered paying by finance as a potential option, and 69% said they didn’t consider any other payment options.
This means a significant number of users are missing out on the benefits of paying for their insurance through finance, including improved cash flow as the business frees up working capital to pay for other costs, and also reducing their corporation tax as the business can add the finance cost as a business expense.
Despite clear benefits, a perception issue remains. When polled, 42% of SMEs (businesses with less than £500k revenue) stated that they still have a negative perception towards paying for insurance by finance. However attitudes are more mature amongst larger businesses (revenues over £500k), with only 28% reporting a negative perception.
When it comes to offering premium finance to SMEs, research has revealed there is a clear awareness gap between brokers and customers. While 88% of brokers say they are proactive at offering premium finance and 82% say they regularly discuss premium finance with clients, the experience of SMEs is markedly different. The Close Brothers Premium Finance research finds that, according to SMEs, just 40% of brokers are said to be sharing information on finance suggesting that brokers could do more to highlight the benefits of paying for insurance on finance.
Shaun Hooper, managing director at Close Brothers Premium Finance said: “Whilst more mature businesses understand the benefits of, and frequently take advantage of finance for insurance, SMEs are often unaware of the benefits and are more likely to have a negative perception towards finance.
“There is an opportunity for brokers to help steer the conversation and advocate for the benefits of paying via finance. As SMEs up and down the UK look to stabilise their finances to enable them to focus on the future, the benefits of Premium Finance, for example reducing tax liability and freeing up cash flow to invest in their growth plans, can be truly transformative.
“From the broker perspective, they should feel confident in reopening conversations about finance at renewal and Close Brothers Premium Finance are committed to providing brokers with the tools for this task, including training for how best to advocate for the benefits of premium finance. Not only are the benefits compelling, it’s clear that in many instances, brokers would be pushing at an open door. And working with a responsible lending partner, businesses and brokers alike can help unlock the UK’s potential.”
Digging down into why SMEs pay for insurance on finance, SMEs say that affordability is the key factor. For those who opt to go down the route of finance, it’s because they can’t afford to pay in one go (23%), for those paying by monthly direct debit, it’s to help with cashflow (31%).
When those who don’t already use premium finance were asked what would make them consider it , claiming the expense as a tax deductible was the most popular benefit with a net approval rate of (31%), followed by debunking misconceptions (i.e making clear there are no hidden costs) (23%), and being made aware that businesses’ line of credit isn’t impacted (23%). Highlighting the benefit of freeing up cashflow (23%) was also cited as being a prompt to investigate finance further
